Last update on 2024-06-27

LyondellBasell Industries (LYB) - Dividend Analysis (Final Score: 6/8)

Discover a comprehensive analysis of LyondellBasell Industries' dividend policy, including performance, stability, and key ratios. Final Score: 6/8

Short Analysis - Dividend Score: 6

We're running LyondellBasell Industries (LYB) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

LyondellBasell Industries (LYB) scored a 6 out of 8 in the dividend analysis, showing decent performance but with some concerns. The company's current dividend yield is notably higher than the industry average, suggesting a strong return for income investors. However, the dividend growth rate has been quite volatile over the last 20 years, with large fluctuations. The average payout ratio is below the 65% threshold, which is a positive indicator of sustainable dividend practices. Nonetheless, the coverage of dividends by both earnings and cash flow is inconsistent, raising some sustainability concerns. LYB has not paid dividends reliably for over 25 years but has engaged in substantial stock repurchases over the past 20 years, indicating a commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

While the high dividend yield and sustainable payout ratio are attractive aspects, LyondellBasell's dividend volatility and inconsistent earnings coverage should be carefully considered. This stock may be suitable for investors willing to accept higher risk for potential high returns. For more conservative investors, the lack of long-term dividend stability and the shorter history of dividend payments might be a concern. Investigate further by reviewing LYB’s recent financial performance and market conditions before making any decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend Yield measures the return an investor gets from dividends relative to the stock price. It indicates how much cash flow a shareholder gets for investing in a company, important for income-focused investors.

LyondellBasell Industries (LYB) has a current dividend yield of 5.1956% which is significantly higher than the industry's average of 2.37%. This suggests that LYB is returning substantial earnings to its shareholders through dividends. Over the last 20 years, LYB’s dividend yield has demonstrated significant fluctuation, peaking at 20.2688% in 2019. Historically, LYB’s yield has often outpaced the industry average, indicating strong dividend payouts relative to stock price. Given that the stock closed at $95.08 in 2023, the solid dividend per share (4.94) underlines LYB’s commitment towards rewarding its investors. However, potential investors should consider the yield consistency and any possible reasons for such volatility. The currently elevated yield suggests a lucrative opportunity for income investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Criterion 1.1 evaluates whether the Dividend Growth Rate over the last 20 years exceeds 5%, indicating company stability.

The dividend data from 2007 to 2023 shows a volatile trend in LyondellBasell Industries' dividend per share ratio. Notably, the values are based on percentage changes, with a significant decline in 2012 (-16.8317) and 2013 (-52.381), followed by spikes in 2014 (35) and 2019 (378.75). These dramatic changes suggest instability. The average dividend ratio of 22.7336% indicates growth potential but also signifies high volatility, which is generally unfavourable for investors seeking stable dividend growth. Therefore, the dividend growth rate over this period does not exhibit steadiness and predictability, making it difficult to conclude a reliable annual growth rate exceeding 5%.

Average annual Payout Ratio lower than 65% in the last 20 years?

This criterion examines if LyondellBasell's average dividend payout ratio has been below 65% over the last 20 years, suggesting financial prudence.

The data exhibit an average payout ratio of approximately 52.78% over the observed period. This is favorable, as it remains below the 65% threshold, indicating that LyondellBasell Industries has generally maintained a conservative distribution policy. While certain years, such as 2011, 2012, 2019, and 2020, show significantly higher payout ratios exceeding 65%, the overall average remains compliant. This suggests sustainable dividend practices while providing room for reinvestment and growth.

Dividends Well Covered by Earnings?

The criterion examines whether dividends are sufficiently backed by earnings. High earnings coverage is crucial for sustainable dividends.

Analyzing the earnings per share (EPS) and dividends per share (DPS) for LyondellBasell Industries from 2007 to 2023 reveals a mixed trend. Particularly, the coverage ratio was above 1 in 2011 and 2019, suggesting dividends were well-supported by earnings in these years. However, in most years, the coverage ratio is below 1, indicating that the dividends exceed earnings. This trend can raise concerns about the sustainability of dividends, especially given the notable dip in EPS during 2008-2009 financial crisis and recent declines in 2020 and 2022. Thus, while LyondellBasell has a history of paying dividends, ensuring consistent EPS growth is essential for maintaining these payouts and achieving shareholder value.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow signifies the company generates enough cash to cover its dividend payouts. A ratio above 1 indicates healthy coverage.

Analyzing the provided data points from 2007 to 2023 for LyondellBasell Industries (LYB), we observe fluctuating coverage ratios. Except for 2007, 2011, and the recent years post-2020, the ratio has been predominantly under 1. Notably, the ratio in 2011 surpassed 1, at 1.59, implying cash flows were substantially greater than dividends. However, the ratios in 2009 and 2010 were 0 due to free cash flow issues. This variability suggests that while LYB has periods of strong dividend coverage, the inconsistency might be concerning for investors looking for stable dividend insulation. More solid annual cash flows would be energy market dependencies impactful on LYB's cash flow dynamics and thereby on dividend stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments over the past 20 years help attract income-seeking investors and signal a company's financial health.

Initially, from 2007 to 2010, LyondellBasell Industries did not pay dividends, likely due to the aftermath of the 2008 financial crisis and their Chapter 11 bankruptcy filing. Starting in 2011, the company resumed dividend payments at $5.05 per share. However, there were significant fluctuations: for instance, there was a dip from $5.05 in 2011 to $4.2 in 2012, and from there to $2 in 2013—a drop of over 50%. Another notable fluctuation occurred in 2019 when dividends spiked to $19.15, followed by a significant drop to $4.2 in 2020. Such volatilities indicate that LYB's dividends have not been stable and do not meet the criteria of not dropping by more than 20%. For income-focused investors, this trend may be concerning, reflecting underlying business volatility.

Dividends Paid for Over 25 Years?

This criterion examines if LyondellBasell Industries has paid dividends for at least 25 years, which is important for assessing long-term dividend reliability.

LyondellBasell Industries has not met the criterion of paying dividends for over 25 years. The dividend history provided starts in 2007, with the first dividend payment appearing in 2011. This means the company has a dividend-paying history of approximately 12 years, which is less than half the required period. This trend is not favorable for conservative investors looking for a long history of consistent dividend payouts, as it indicates a shorter track record in this area. Several of the dividends are also inconsistent, with amounts varying significantly from year to year, including a substantial spike in 2019 with a dividend of 19.15 per share.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate the company's commitment to returning value to shareholders. Tracking this for 20 years offers long-term perspective.

LyondellBasell Industries (LYB) has shown a reliable pattern of stock repurchases over the past 20 years, particularly between 2013 and 2023. The number of shares decreased from 564 million in 2007 to 325 million in 2023, highlighting a significant reduction of 239 million shares. The average annual repurchase rate of -3.3% further underscores this commitment. This trend is positive for shareholders as it often leads to share value increases and signals strong financial health and confidence in future performance.